Friday, January 29, 2016

[Embedded video. These aren't picked up when other sources pick up the blog, so come back to the original if you don't see the video.]

PBS and Paul Solman did a great job, especially relative to the usual standards of economics coverage in the media. OK, not perfect -- they livened it up by tying it to partisan politics a bit more than they should have, though far less than usual.

I don't (yet, maybe) agree with Bob. I still hope that the mastery of information and biology can produce results like the mastery of electromagnetism and fossil fuels did earlier. I still suspect that slow growth is resulting from government-induced sclerosis rather than an absence of good ideas in a smoothly functioning economy. But Bob has us talking about The Crucial Issue: long term growth, and its source in productivity. The 1870-1970 miracle was not about whether the federal funds rate was 0.25% higher or lower. And the issue is not about opinions, like the ones I just offered, but facts and research, which Bob offers.

The issue of future long-term growth is tied with the issue of measurement, something else that Bob has championed over the years. GDP is well designed to measure steel per worker. Information, health and lifespan increases are much more poorly measured. This is already a problem in long-term comparisons. In the video, Bob points to light as the greatest invention. The price of light has fallen by a factor of thousands since the age of candles, to the point where light consumption is a trivial part of GDP. It's a worse problem as all the great stuff becomes free. I suspect that we'll have to try to measure consumer surplus not just the market value of goods and services.

And congratulations to Bob. The economics profession tends to focus on the young rising stars, but he offers inspiration that economists can produce magnum opuses of deep impact at any point in a career.

Friday, January 22, 2016

Left and right agree that the U.S. tax code is a mess. The men and women running for president in 2016 are offering reform plans, and proposals to fix the code regularly surface in Congress. But these plans are, and should be, political documents, designed to attract votes. To prevent today’s ugly bargains from becoming tomorrow’s conventional wisdom, we should more frequently discuss the ideal tax structure.

The first goal of taxation is to raise needed government revenue with minimum economic damage. That means lower marginal rates—the additional tax people pay for each extra dollar earned—and a broader base of income subject to tax. It also means a massively simpler tax code.

Friday, January 15, 2016

The post is unusual, because practitioners tend to regard the Fed and QE as very powerful. But here he expresses nicely the skeptical view of many academics such as myself.

the Fed leadership has now abandoned its original story about how QE affects the economy and has conceded that the tool is weak

It has long been obvious that QE operated mainly through signaling and confidence channels, which wore off on their own without any adjustment in the size or composition of the Fed’s balance sheet....

Obvious to us skeptics, not to the Fed or to the many academic papers written trying to explain the supposed powers of QE

The story initially told by the Fed leadership starts with the claim that large scale asset purchases (LSAPs) [lower interest rates]... by removing default-free interest rate duration from the capital markets. ...

Tuesday, January 5, 2016

My post "Secret data" on replication provoked a lot of comment and emails, more reflection, and some additional links.This isn't about rules
Many of my correspondents missed my main point -- I am not advocating more and tighter rules by journals! This is not about what you are "allowed to do," how to "get published" and so forth.

In fact, this extra rumination points me even more strongly to the view that rules and censorship by themselves will not work. How to make research transparent, replicable, extendable, and so forth varies by the kind of work, the kind of data, and is subject like everything else to creativity and technical improvement. Most of all, it will not work if nobody cares; if nobody takes the kind of actions in bullet points of my last post, and it's just an issue about rules at journals. Already, (more below) rules are not that well followed.

This isn't just about "replication."

"Replication" is much too narrow a word. Yes, many papers have not documented transparently what they actually did, so that even armed with the data it's hard to produce the same numbers. Other papers are based on secret data, the problem with which I started.

But in the end, most important results are not simply due to outright errors in data or coding. (I hope!)

The important issue is whether small changes in instruments, controls, data sample, measurement error handling, and so forth produce different results, whether results hold out of sample, or whether collecting or recoding data produces the same conclusions. "Robustness" is a better overall descriptor for the problem that many of us suspect pervades empirical economic research.

About Me and This Blog

This is a blog of news, views, and commentary, from a humorous free-market point of view. After one too many rants at the dinner table, my kids called me "the grumpy economist," and hence this blog and its title.
In real life I'm a Senior Fellow of the Hoover Institution at Stanford. I was formerly a professor at the University of Chicago Booth School of Business. I'm also an adjunct scholar of the Cato Institute. I'm not really grumpy by the way!